Annual Financial Report

THE INVESTMENT COMPANY PLC ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2014 The full Annual Report and Accounts for the year ended 30 June 2014 can be found on the Company's website: http://www.mitongroup.com/tic. DIRECTORS (all non-executive) Sir David Thomson Bt. (Chairman) S. J. Cockburn P. S. Allen M. H. W. Perrin (Audit Committee Chairman) STRATEGIC REPORT SUMMARY OF RESULTS At 30 June At 30 June Change 2014 2013 Equity shareholders' funds 18,693,293 16,237,484 15.1% Number of ordinary shares in issue* 4,739,549 4,739,549 0.0% Net asset value per ordinary share 394.41p 342.60p 15.1% Ordinary share price (mid) 406.00p 327.50p 24.0% Premium/(discount) to net asset 2.94% (4.41)% value At 30 June At 30 June 2014 2013 Total return per ordinary share** 67.03p 71.41p Return after taxation per ordinary 91.02p 7.91p share Dividends paid/declared per 20.72p 6.00p ordinary share * Excluding shares held in treasury. ** The total return per ordinary share is based on total comprehensive income after taxation as detailed in the Consolidated Statement of Comprehensive Income and in note 7 and is shown to enable comparison with other investment trust companies. FINANCIAL CALENDAR November Payment of first interim dividend for the year ending 30 June 2015. December Annual General Meeting. February Payment of second interim dividend for the year ending 30 June 2015. Announcement of Half-Yearly Financial Report. May Payment of third interim dividend for the year ending 30 June 2015. August Payment of fourth interim dividend for the year ending 30 June 2015. September/October Announcement of Annual Results. CHAIRMAN'S STATEMENT This report covers the first full year since the reorganisation of the Company at the end of June 2013. Over the year the net asset value ("NAV") of the Company has increased from 342.6p to 394.4p, a rise of 15.1%. In addition, the Company has also paid four interim dividends amounting to 20.7p, which represents a 6.0% yield on the NAV at the end of June 2013. The total return in the year was therefore 19.5%. Following the reorganisation, and pursuant to the new investment policy, much of the additional capital raised at the time of the reorganisation has been invested in the equity of some promising quoted companies, many with attractive dividend yields. In parallel, the portfolio still substantially comprises a range of preference shares, loan stocks, debentures and notes, which may also have the right to convert into the equity of the underlying issuer. At the end of June 2013, our largest holdings by a substantial margin were in Lloyds Banking Group Enhanced Capital Notes ("ECNs"). An offer from Lloyds Banking Group to convert such instruments into a different note, gave us a good opportunity to reduce this position, realising substantial capital gains. The new strategy has made a good start, as reflected in the growth in NAV over the year. There is not a single representative benchmark index of this portfolio of investments. However, shareholders will note that the FTSE Actuaries Government Securities UK Gilts All Stocks Index rose 2.3% on a total return basis over the year, and the total return on the FTSE All-Share Index was 13.1%. Going forward we believe there will be more opportunities for this Company to invest in convertible preference and convertible loan stocks. We believe the best of these will be particularly attractive to investors, as they often pay premium yields, and also offer investors scope to participate in the rise of the underlying equity if it appreciates markedly. At the time of the reconstruction in June 2013, your Board commenced paying four dividends through the year amounting to 6% of the NAV at the beginning of the year. Although this should not be taken as a firm forecast, it is the Directors' intention, based on a NAV at 30 June 2014 of 394.4p, to pay four dividends totalling some 23.6p in the current year. Currently the dividend payable by the Company each year is calculated as 6% of the NAV at the start of each year. Given that the asset value of the Company could fluctuate significantly each year, the Directors are considering modifying this in future years so that the dividend payable might grow more sustainably over the longer term. Although asset prices have been boosted by the policies of central banks, there are still opportunities for a fund such as ours to deliver attractive returns. Clearly the Company is not immune from market fluctuations, but we believe the preference share and loan stock market in particular still offers a good mix of premium income along with the potential for capital gain. The rise in UK equities and increase in investor confidence has meant that the cost of market insurance has declined to levels similar to those of the mid-2000s. After the year end, on 5 September 2014, the Company invested around 1.2% of the portfolio, at that date, to purchase some downside protection, covering approximately one-third of the portfolio, extending through to March 2016. Sir David Thomson Chairman 1 October 2014 MANAGER'S REPORT Markets Over the twelve months to 30 June 2014, the UK equity market has appreciated despite a continued slowdown in world growth. Over the year, the total return on the FTSE All-Share Index was 13.1%. In contrast, bond prices tended to remain generally flat, and the FTSE Actuaries Government Securities UK Gilts All Stocks Index rose 2.3% on a total return basis. Smaller company share prices have tended to outperform over the year. Although many will equate this with the UK economy enjoying a period of accelerating growth, there are other factors too. In particular, the growth potential of smaller companies becomes more distinctive at times when world growth is slow. Smaller companies have the potential to sustain growth even at times of economic stagnation. Given slowing world growth, it is perhaps less surprising to note that the FTSE Small Cap Index (excluding investment companies) Index rose 22.5%, and the AIM All-Share Index rose 13.6%. Portfolio The portfolio reflects the historic range of holdings in preference shares, loan stocks, debentures and notes, and the new holdings in the equity securities of UK quoted companies. There were two major changes to the portfolio in the year. At the beginning of the year, around a third of the portfolio was invested in Lloyds Banking Group ECNs, which had enjoyed strong performance as market confidence recovered after the 2008 crisis. Although these notes do pay a high level of income, their prices can be volatile at times of economic setbacks. Lloyds Banking Group sought to buy in some of its ECNs in exchange for other securities. The terms of the transaction were set to be attractive in the current market environment so the price of the Lloyds Banking Group ECNs increased during this period. We used the market liquidity and attractive pricing to reduce this holding down to rather less than 7% of the overall portfolio. The Â£4.3m of new equity raised at the time of the reconstruction has been invested principally in a number of higher yielding equities, with the potential for growth. Many of these are smaller companies which we believe have attractive risk/reward ratios. In addition, one new company has been funded via an 8% loan note along with warrants over the equity. William Sinclair is a horticultural peat and soil substitute supplier. In the retail sector it operates under the J Arthur Bowers brand. It needed additional capital to fund the relocation of two of its operations into a new site which will increase its production and efficiency. We are hopeful that we will identify further such opportunities in the coming year. Performance in the portfolio has principally been driven by the movements in the share prices of the equities. In particular, four newly issued companies were brought into the portfolio. Safestyle is one of the three largest manufacturers of double-glazed windows for the refurbishment market. DX Group is a logistics business that transports challenging items from small pallets to British Passports where they need to prove they have delivered it to the right address. Shoe Zone has around 550 shops around the UK selling keenly priced, but well-made shoes. Finally Plus500 is one of the leading providers for those wishing to trade shares via the internet, using the contracts for difference structure. All have traded well since issue, although Plus500 has seen much greater upgrades and this propelled the share price up fivefold. For that reason the stock has been subsequently sold. There have been some stocks where their share prices have fallen back over the year. Lancashire Holdings, an insurance underwriting business, and Bagir, a supplier of jackets and suits to UK retailers, have both fallen back on tougher trading statements. However, overall the equity portfolio has performed well in the period. The criteria used for selecting portfolio stocks There are five criteria that the managers use to determine the scope for the business to deliver good and growing dividends. The prospect of turnover growth If a business is to sustain and grow its dividend, then the portfolio needs to invest in companies that will generate more cash in the coming years. Without decent turnover growth this is near-impossible to achieve over time. Sustained or improving margins A business needs to deliver significant value to its customer base if it is to sustain decent margins. Unexpected cost increases cannot be charged on to customers if they are anything less than delighted with their suppliers. Turnover growth will not lead to improved cash generation if declining margins offset it. A forward-looking management team Businesses often need to make commercial decisions on incomplete information. A thoughtful and forward-looking team has a better chance of making better decisions. Robust balance sheet There are disproportionate advantages to having the independence of a strong balance sheet in a period of elevated economic and political risks. Conversely, corporates with imprudent borrowings can risk the total loss of shareholders' capital. Low expectation valuation Many of the most exciting stocks enjoy higher stock market valuations but almost none can consistently beat the high expectations baked into their share prices. Those with low expectations tend to be less vulnerable to disappointment, but conversely can enjoy excellent share price rises if they surprise on the upside. Companies that best meet these criteria on a prospective basis are believed to be best positioned to deliver attractive returns to shareholders, as well as offering moderated risk. These criteria, used in reverse, can also be useful in determining the timing of portfolio stocks that should be considered for divestment. So, a business in danger of suffering a period of turnover declines, for example, would naturally be expected to generate less cash flow in future years and thereby struggle to sustain its current dividend over time, let alone grow it. Performance Although equity markets were relatively strong in the period between June and December, subsequently they have fluctuated without making much progress. The appreciation of the portfolio was mainly generated in the first half of the year under review, although the portfolio has been resilient through the more testing markets thereafter. This is despite the fact that the smaller companies indices peaked out during this period. Over the year the NAV of the Company appreciated 15.1% and the Company also declared four interim dividends that amounted to 6% of the NAV at the end of June 2013. Prospects The scope for the Company to identify attractive investment opportunities in convertible loan stocks or convertible preference shares appear to be improving. With smaller companies shares peaking out over the last five months, it has become rather more difficult to place new equity. That has been especially evident amongst smaller company new issues, where there has been a degree of indigestion. At times like this, there is perhaps greater interest in an existing quoted company issuing a new preference share, or loan stock, with an attractive yield. The dividend income tends to attract capital even at times when the market is unsteady. However, we find this structure attractive because the preference shares or loan stock come with the right to convert into ordinary shares at maybe a 10% or 15% premium to the current share price. If the Company does make a good investment, and the share price does appreciate over the coming 3 to 5 years, then the Company participates in a useful proportion of the capital gain on the share price rise. Gervais Williams and Martin Turner Miton Asset Management Limited 1 October 2014 TWENTY LARGEST INVESTMENTS At 30 June 2014 Market or % of Directors' total Stock Number Issue Book cost valuation portfolio % Â£ Â£ 1. Lloyds Banking Group 7.625% Perpetual (LBG 478,000 0.16 204,360 508,210 Capital) 7.875% Perpetual (LBG 362,000 0.05 245,997 395,413 Capital) 7.5884% ECN 12/05/20 300,000 0.04 136,323 320,760 (LBG Capital) 7.281% Perpetual (Bank 400,000 0.27 315,330 461,240 of Scotland) 902,010 1,685,623 9.64 2. Phoenix Life 7.25% perp notes 1,060,000 0.53 811,923 1,110,350 6.35 3. Royal Bank of Scotland Group 9% series 'A' non-cum pref (NatWest) 500,000 0.36 362,920 660,000 Sponsored ADR each rep Pref C (NatWest) 20,000 0.20 55,473 307,044 418,393 967,044 5.53 4. Safestyle UK Ordinary 1pÂ§ 369,000 0.47 369,000 677,576 3.87 5. Manx Telecom Ordinary 0.2pÂ§ 340,321 0.30 507,782 578,546 3.31 6. Randall & Quilter Investment Holdings Ordinary 2pÂ§ 387,000 0.54 502,731 572,760 3.28 7. Juridica Investments Ordinary NPVÂ§ 410,000 0.39 544,190 565,800 3.24 8. Friends Life Group Ordinary NPVÂ§ 173,069 0.01 565,438 545,687 3.12 9. Conygar Investment Co mpany Ordinary 5pÂ§ 320,478 0.37 406,493 538,403 3.08 10. Brit Ordinary 1pÂ§ 219,167 0.01 526,001 536,959 3.07 11. Esure Group Ordinary 0.08333pÂ§ 201,217 0.05 545,776 536,243 3.07 12. Charles Taylor Ordinary 1pÂ§ 230,000 0.54 419,215 529,000 3.03 13. DX (Group) Ordinary 1pÂ§ 420,000 0.21 484,204 525,000 3.00 14. Gable Holdings Ordinary 2.5pÂ§ 617,063 0.46 339,385 512,162 2.93 15. Fishguard & Rosslare 3.5% GTD Preference 790,999 63.91 441,810 490,419 2.80 Stock 16. Lancashire Holdings Common stockÂ§ 73,000 0.04 552,086 477,420 2.73 17. Royal Mail Ordinary 1pÂ§ 90,200 0.01 465,823 450,098 2.57 18. Newcastle Building Society 6.25% sub notes 23/12/ 600,000 2.40 405,438 419,460 2.40 19 19. REA Holdings 9.5% GTD Notes 31/12/ 300,000 2.00 298,254 313,500 17 7.5% Dollar Notes 30/ 150,000 0.44 76,740 87,727 06/17 374,994 401,227 2.29 20. Fairpoint Group Ordinary 1pÂ§ 300,000 0.68 307,992 393,000 2.25 9,890,684 12,512,777 71.56 Â§ Issues with unrestricted voting rights The Group has a total of 71 portfolio investment holdings in 57 companies. CORPORATE SUMMARY Investment Objective The Company's investment objective is to provide shareholders with an attractive level of dividends coupled with capital growth over the long-term, through investment in a portfolio of equities, preference shares, loan stocks, debentures and convertibles. Investment Policy The Company will invest primarily in the equity securities of quoted UK companies with a wide range of market capitalisations many of which are, or are expected to be, dividend paying, with anticipated dividend growth in the long term. The Company may also invest in large capitalisation companies, including FTSE 100 constituents, where this may increase the yield of the portfolio and where it is believed that this may increase shareholder value. The Company will also make investments in preference shares, loan stocks, debentures, convertibles and related instruments of quoted UK companies. Any use of derivatives for investment purposes will be made on the basis of the same principles of risk spreading and diversification that apply to the Company's direct investments, as described below. The Company will not enter into uncovered short positions. Risk diversification Portfolio risk will be mitigated by investing in a diversified spread of investments. Investments in any one company shall not, at the time of acquisition, exceed 15% of the value of the Company's investment portfolio. In the long term, it is expected that the Company's investments will be a portfolio of between 40 and 60 securities, most of which will represent individually no more than 3% of the value of the Company's total investment portfolio, as at the time of acquisition. The Company will not invest more than 10% of its gross assets, at the time of acquisition, in other listed closed-ended investment funds, whether managed by the Manager or not, except that this restriction shall not apply to investments in listed closed-ended investment funds which themselves have stated investment policies to invest no more than 15% of their gross assets in other listed closed-ended investment funds. Unquoted investments The Company may invest in unquoted companies from time to time subject to prior Board approval. Investments in unquoted companies in aggregate will not exceed 5% of the value of the Company's investment portfolio as at the time of investment. Borrowing and gearing policy The Company may use gearing, including bank borrowings and the use of derivative instruments such as contracts for differences. The Company may borrow (through bank facilities and derivative instruments) up to 15% of NAV (calculated at the time of borrowing). Investment Strategy The Manager intends to use a bottom-up investment approach for the portfolio, with a diversified portfolio of securities of various market capitalisation sizes. There will be a bias towards dividend paying smaller companies, but the portfolio will also include preference shares, loan stocks, debentures and convertibles with attractive yields. The investment approach can be described as active and universal, as the Company will not seek to replicate any benchmark and will target a significant proportion of smaller company equities within an overall diversified portfolio. Potential investments are assessed against the key criteria including, inter alia, their yield, growth prospects, market positions, calibre of management and risk and cash resources. Dividend Policy The Company will seek to maintain an annualised dividend yield of 6% of NAV (based on the opening NAV at the start of each financial year). It is intended that dividends of roughly equal size will be paid quarterly. This income will be paid out of revenue and/or capital, as available. Currently the dividend payable by the Company each year is calculated as 6% of the NAV at the start of each year. Given that the asset value of the Company could fluctuate significantly each year, the Directors are considering modifying this in future years so that the dividend payable might be grow more sustainably over the longer term. Capital Structure As at 30 June 2014 and the date of this report, the Group's share capital consists of 4,772,049 ordinary shares of 50p each, of which 32,500 shares are held in Treasury and 4,739,549 shares are in circulation. In addition there are 1,717,565 fixed rate preference shares of 50p in issue, all of which are held by a wholly owned subsidiary of the Company. There are no restrictions concerning the transfer of securities in the Company or on voting rights; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; and no agreements which the Company is party to that might affect its control following a successful takeover bid. Total Assets and Net Asset Value The Group had total assets of Â£19.4 million and a NAV of 394.41p per ordinary share at 30 June 2014. Business Model The principal activity of the Company is investment in equity securities of quoted UK companies with a wide range of market capitalisations, preference shares and prior charge securities with a view to achieving a high rate of income and capital growth over the medium term. During the year, the Company was granted approval from HM Revenue & Customs ("HMRC") as an investment trust under s1158/1159 of the Corporation Tax Act 2010 ("s1158/1159") for the accounting period commencing 1 July 2013, and for each subsequent accounting period, subject to there being no serious breaches of the conditions for approval. The principal conditions that must be met for approval by HMRC as an investment trust for any given accounting period are that the Company's business should consist of "investing in shares, land or other assets with the aim of spreading investment risk and giving members of the company the benefit of the results" and the Company must distribute a minimum of 85% of all its income as dividend payments. The Company must also not be a close company. The Directors are of the opinion that the Company has conducted its affairs for the year ended 30 June 2014 so as to be able to continue to qualify as an investment trust. The Company's status as an investment trust allows it to obtain an exemption from paying taxes on the profits made from the sale of its investments and all other net capital gains. Investment trusts offer a number of advantages for investors, including access to investment opportunities that might not be open to private investors and to professional stock selection skills at lower cost. The Company owns Abport Limited, an investment dealing company, and New Centurion Trust Limited, a dormant investment company. Principal Risks and Uncertainties The management of the business and the execution of the Group's strategy are subject to a number of risks. The key business risks affecting the Group are: (i) Investment decisions: the performance of the Group's portfolio is dependent on a number of factors including, but not limited to the quality of initial investment decisions and the strategy and timing of sales; (ii) Investment valuations: the valuation of the Group's portfolio and opportunities for realisations depend to some extent on stock market conditions and interest rates; and (iii) Macroeconomic environment for preference shares and prior charge securities: the environment for issuing of new preference shares and prior charge securities determines whether new issues become available, thus affecting the choice and scope of investment opportunities for the Group. Risk Management Specific policies for managing risks are summarised below and have been applied throughout the period: 1. Market price risk The Manager monitors the prices of financial instruments held by the Group on a regular basis. In addition, it is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce risks arising from investment decisions and investment valuations. The Manager actively monitors market prices throughout the year and report to the Board, which meets regularly in order to review investment strategy. Most of the equity investments held by the Company are listed on the London Stock Exchange. 2. Interest rate risk In addition to the impact of the general investment climate, interest rate movements may specifically affect the fair value of investments in fixed interest securities. 3. Liquidity risk The Group's assets mainly comprise readily realisable quoted securities that can be sold to meet funding commitments if necessary. Short term flexibility is achieved through the use of overdraft facilities. Additional Risks and Uncertainties Include: Credit risk: the failure of a counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss. Normal delivery versus payment practice and review of counterparties and custodians by the Manager mean that this is not a significant risk. Discount volatility: The Company's shares may trade at a price which represents a discount to its underlying NAV. Regulatory risk: The Company operates in an evolving regulatory environment and faces a number of regulatory risks. A breach of s1158/1159 would result in the Company being subject to capital gains tax on portfolio investments. Breaches of other regulations, including the Companies Act 2006, the UKLA Listing Rules, the UKLA Disclosure and Transparency Rules, or the Alternative Investment Fund Managers Directive could lead to a detrimental outcome. Breaches of controls by service providers to the Company could also lead to reputational damage or loss. The Board monitors compliance with regulations, with reports from the Manager and the Administrator. Protection of assets: The Company's assets are protected by the use of an independent custodian, BNY Mellon. In addition, the Company operates clear internal controls to safeguard all assets. These and other risks facing the Company are reviewed regularly by the Board. Key Performance Indicators ("KPIs") The Board reviews performance by reference to a number of KPIs and considers that the most relevant KPIs are those that communicate the financial performance and strength of the Company as a whole. The Board and Manager monitor the following KPIs: NAV performance relative to the FTSE All-Share Index (total return) The NAV per ordinary share at 30 June 2014 was 394.4p per share (2013: 342.6p). The total return of the NAV after adding back dividends paid was 19.5%. This compares favourably with a total return on the FTSE All-Share Index of 13.1%. Premium/(discount) of share price in relation to NAV Over the year to 30 June 2014 the Company's share price moved from trading at a discount of 4.4% to a premium of 2.9%. Ongoing Charges Ratio The Ongoing Charges Ratio for the year to 30 June 2014 amounted to 2.5%. The management fee for the year was reduced by Â£65,747 in order to achieve the maximum Ongoing Charges Ratio permitted under the Management Agreement as explained below. Management The Company's investments are managed by Miton Asset Management Limited. What Miton brings to the Company Miton is distinctive â€¢ Miton is an independent fund management company quoted on the AIM market with an extensive shareholder base of major institutions and a particularly robust balance sheet. â€¢ Miton is distinctive from most other fund managers in that many of its funds do not use traditional benchmarks since they can bring unintentional risks that can impede the day-to-day managers' ability to maximise absolute return in unsettled markets. â€¢ Through anticipating post credit boom trends, Miton proposes investment strategies that are set up with the forthcoming trends in mind, rather than slavishly following the consensus. â€¢ Many of Miton's funds have greater scope to manage volatility more closely than others, with an aim to better sustain its clients' assets through market cycles. Miton asks more of its managers Miton believes that able fund managers are better placed to deliver for clients if they have wide ranging flexibility. Limiting the investment universe to a short list of benchmark stocks can be demotivating since the risk/reward ratio of the portfolio could be constrained above the optimal level unnecessarily. The best managers can take advantage of this wider flexibility to better moderate portfolio risk, as well as enhancing their clients' returns through selecting the best from a wider range of potential investments. In addition, Miton also places great emphasis on its fund managers doing their own analysis since it believes this ensures that they have greater conviction in subsequent investment decisions, and are less vulnerable to becoming panicky sellers when a share price moves adversely. Details of the Manager Miton has a team of six fund managers researching the full universe of quoted UK stocks. These included George Godber and Georgina Hamilton who principally seek stocks which are intrinsically cheap with regard to their tangible assets or where the scale of the underlying cashflow is underappreciated. Bill Mott and Eric Moore principally concentrate on identifying mid and larger companies which have the best opportunities to grow their dividends over time. The day-to-day management of the portfolio is carried out by Gervais Williams and Martin Turner, who research all quoted companies, but have a particular focus on many of the smaller quoted stocks. Gervais Williams Gervais joined Miton in March 2011 as Managing Director of the Group. He has been an equity portfolio manager since 1985, including 17 years as Head of UK Smaller Companies and Irish Equities at Gartmore. He won the Grant Thornton Investor of the Year Award in 2009 and 2010, and was recently awarded Fund Manager of the Year 2014 by What Investment? Martin Turner Martin joined Miton in May 2011. Martin and Gervais have had a close working relationship since 2004, and their complementary expertise and skills led to a series of successful companies being backed. Martin qualified as a Chartered Accountant with Arthur Andersen, and also has extensive experience at Rothschild, Merrill Lynch and Collins Stewart, where as Head of Small/Mid Cap Equities his role covered their research, sales and trading activities. Management Arrangements During the year, the Company's investments were managed by Miton Asset Management Limited under an agreement dated 31 May 2013. On 1 January 2014, the agreement was novated from Miton Capital Partners Limited to Miton Asset Management Limited. Subsequent to the year end on 22 July 2014, the Company appointed PSigma Unit Trust Managers Limited ("PUTM"), a Miton Group company, as the Company's Alternative Investment Fund Manager ("AIFM") on the terms of, and subject to the conditions of a new investment management agreement (the "Management Agreement") between the Company and PUTM. PUTM has been approved as an AIFM by the UK's Financial Conduct Authority. The existing investment management agreement between the Company and Miton Asset Management Limited, which is not authorised as an AIFM, has been terminated. Miton Asset Management Limited has been appointed by PUTM as investment manager to the Company pursuant to a delegation agreement, so there will be no change to the day-to-day investment management arrangements. Under the terms of the Management Agreement, the Manager has discretion to buy, sell, retain, exchange or otherwise deal in investment assets for the account of the Company. The Manager is entitled to receive from the Company or any member of its group in respect of its services provided under the Management Agreement, a management fee payable monthly in arrears calculated at the rate of one-twelfth of 1% per calendar month of the NAV for its services under the Management Agreement, save that its management fee will be reduced by such amount (being not more than the fees payable to the Manager in respect of any year (exclusive of VAT)) so as to seek to ensure that the Ongoing Charges Ratio of the Company does not exceed 2.5% per annum. The Management Agreement is terminable by either the Manager or the Company giving to the other not less than six months' written notice, such notice not to expire earlier than the second anniversary of commencement. The Management Agreement may be terminated earlier by the Company with immediate effect on the occurrence of certain events, including the liquidation of the Manager or appointment of a receiver or administrative receiver over the whole or any substantial part of the assets or undertaking of the Manager or a material breach by the Manager of the Management Agreement which is not remedied. The Company may also terminate the Management Agreement should Gervais Williams cease to be an employee of the Manager's group and, within three months of his departure is not replaced by a person whom the Company considers to be of equal or satisfactory standing. The Company may also terminate the Management Agreement if a continuation vote is not passed. Environmental, Human Rights, Employee, Social and Community Issues The Board consists entirely of non-executive Directors. Day-to-day management of the business is delegated to the Manager. As an investment trust, the Company has no direct impact on the community or the environment, and as such has no environmental, human rights, social or community policies. In carrying out its investment activities and in relationships with suppliers, the Company aims to conduct itself responsibly, ethically and fairly. In relation to gender diversity considerations, whilst there are currently no female Directors of the Company, members of the Board are appointed on merit, against an objective criteria set by the Board acting as the Nomination Committee. On behalf of the Board Sir David Thomson Chairman 1 October 2014 Going Concern The Company's Articles of Association require a continuation vote to be proposed at the 2016 Annual General Meeting for the Company to be wound up on a voluntary basis. The Directors believe that it is appropriate to adopt the going concern basis in preparing the financial statements as the assets of the Group consist mainly of securities which are readily realisable. The Directors are of the opinion that the Group has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion the Directors have considered the liquidity of the portfolio and the Company's ability to meet obligations as they fall due for a period of at least 12 months from the date that these financial statements were approved. STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS The Directors are responsible for preparing this report and the financial statements in accordance with applicable United Kingdom law and regulations and those International Financial Reporting Standards ("IFRS") adopted by the European Union. Company law requires the Directors to prepare financial statements for each financial period which present fairly the financial position of the Company and of the Group and the financial performance and cash flows of the Company and of the Group for that period. In preparing those financial statements, the Directors are required to: â€¢ select suitable accounting policies and then apply them consistently; â€¢ make judgements and estimates that are reasonable and prudent; â€¢ present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; â€¢ state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; â€¢ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business; and â€¢ provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company's financial position and financial performance. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the Group financial statements comply with the Companies Act 2006 and Article 4 of the International Accounting Standards ("IAS") Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations, and for ensuring that the Annual Report includes information required by the Listing Rules of the Financial Conduct Authority. The financial statements are published on the Company's website, www.mitongroup.com/tic, which is maintained on behalf of the Company by the Manager. Under the Management Agreement, the Manager has agreed to maintain, host, manage and operate the Company's website and to ensure that it is accurate and up-to-date and operated in accordance with applicable law. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and accordingly, the Auditor accepts no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom covering the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction. We confirm that to the best of our knowledge: â€¢ the Group financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; â€¢ this Annual Report includes a fair review of the development and performance of the business and the position of the Group together with a description of the principal risks and uncertainties that it faces; and â€¢ the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy. On behalf of the Board Sir David Thomson Chairman 1 October 2014 NON-STATUTORY ACCOUNTS The financial information set out below does not constitute the Company's statutory accounts for the years ended 30 June 2014 or 30 June 2013 but is derived from those accounts. Statutory accounts for the year ended 30 June 2013 have been delivered to the Registrar of Companies and statutory accounts for the year ended 30 June 2014 will be delivered to the Registrar of Companies in due course. The Auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor's reports can be found in the Company's full Annual Report and Accounts at www.mitongroup.com/tic. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 30 June 2014 Year to 30 June 2014 15 months to 30 June 2013 Notes Revenue Capital Total Revenue Capital Total Â£ Â£ Â£ Â£ Â£ Â£ Realised gains on 12 - 2,456,691 2,456,691 - 220,111 220,111 investments Unrealised gains 12 - 522,123 522,123 - - - on investments held at fair value through profit or loss Movement in - 791,998 791,998 - 48,876 48,876 impairment provision on investments held as available for sale Exchange losses - (221) (221) - - - on capital items Investment income 2 1,045,888 - 1,045,888 1,134,994 - 1,134,994 Investment 3 (116,251) - (116,251) - - - management fee Other 4 (348,198) - (348,198) (707,351) - (707,351) administrative expenses Return before 581,439 3,770,591 4,352,030 427,643 268,987 696,630 finance costs and taxation Finance costs Other finance 5 - - - (432,550) - (432,550) costs Loan note (30,759) - (30,759) (62,700) - (62,700) interest Other interest - - - (2,195) - (2,195) payable Return before 550,680 3,770,591 4,321,271 (69,802) 268,987 199,185 taxation Taxation 6 (7,299) - (7,299) - - - Return after 543,381 3,770,591 4,313,972 (69,802) 268,987 199,185 taxation Other comprehensive income Movement in unrealised appreciation on investments held as available for sale Recognised in - 798,908 798,908 - 1,357,358 1,357,358 equity Recognised in - (1,935,599) (1,935,599) - (159,534) (159,534) return after taxation Other - 1,136,691 1,136,691 - 1,197,824 1,197,824 comprehensive income after taxation Total 543,381 2,633,900 3,177,281 (69,802) 1,466,811 1,397,009 comprehensive income after taxation Return after taxation per 50p ordinary share Basic and diluted 7 11.46p 79.56p 91.02p (6.35)p 14.26p 7.91p Return on total comprehensive income after taxation per 50p ordinary share Basic and diluted 7 11.46p 55.57p 67.03p (6.35)p 77.76p 71.41p The total column of this statement is the Consolidated Statement of Comprehensive Income of the Group prepared in accordance with IFRS. The supplementary revenue and capital columns are prepared in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies ("AIC SORP"). All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. The notes below form part of these financial statements. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2014 Capital Issued Share Own redemption Revaluation Capital Revenue capital premium shares held reserve reserve reserve* account* Total Â£ Â£ Â£ Â£ Â£ Â£ Â£ Â£ Balance at 1 July 2,386,025 4,464,443 - 2,408,820 3,511,569 3,013,972 452,655 16,237,484 2013 Total comprehensive income Net return for the - - - - - 3,770,591 543,381 4,313,972 period Movement in unrealised appreciation on investments held as available for sale: - Recognised in - - - - 798,908 - - 798,908 equity - Recognised in - - - - (1,935,599) - - (1,935,599) return after taxation Transactions with shareholders recorded directly to equity Ordinary dividends - - - - - - (710,932) (710,932) paid Costs of issue - (10,540) - - - - - (10,540) Balance at 30 June 2,386,025 4,453,903 - 2,408,820 2,374,878 6,784,563 285,104 18,693,293 2014 Balance at 1 April 1,808,728 1,019,246 (2,919,861) 685,250 2,313,745 4,806,064 684,449 8,397,621 2012 Total comprehensive income Net return for the - - - - - 268,987 (69,802) 199,185 period Movement in unrealised appreciation on investments held as available for sale: - Recognised in - - - - 1,357,358 - - 1,357,358 equity - Recognised in - - - - (159,534) - - (159,534) return after taxation Transactions with shareholders recorded directly to equity Ordinary dividends - - - - - - (112,044) (112,044) paid Participating element - - - - - - (49,948) (49,948) of preference dividends paid Conversion of (858,782) - 2,919,861 - - (2,061,079) - - non-voting ordinary shares into fixed rate preference shares Conversion of 773,833 - - 1,723,570 - - - 2,497,403 preference shares into ordinary shares Issue of new ordinary 662,246 3,682,753 - - - - - 4,344,999 shares Costs of issue - (237,556) - - - - - (237,556) Balance at 30 June 2,386,025 4,464,443 - 2,408,820 3,511,569 3,013,972 452,655 16,237,484 2013 * Reserves that are distributable by way of a dividend. The notes below form part of these financial statements. COMPANY STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2014 Capital Issued Share redemption Revaluation Capital Revenue capital premium reserve reserve reserve* Account* Total Â£ Â£ Â£ Â£ Â£ Â£ Â£ Balance at 1 July 2013 2,386,025 4,464,443 2,408,820 3,536,373 443,750 2,962,669 16,202,080 Total comprehensive income Net return for the - - - - 3,788,678 554,107 4,342,785 period Movement in unrealised appreciation on investments held as available for sale: - Recognised in equity - - - 780,821 - - 780,821 - Recognised in return - - - (1,935,599) - - (1,935,599) after taxation Transactions with shareholders recorded directly to equity Ordinary dividends - - - - - (710,932) (710,932) paid Preference share - - - - - (172) (172) dividends paid Costs of issue - (10,540) - - - - (10,540) Balance at 30 June 2,386,025 4,453,903 2,408,820 2,381,595 4,232,428 2,805,672 18,668,443 2014 Balance at 1 April 1,808,728 1,019,246 685,250 2,343,247 4,717,960 791,006 11,365,437 2012 Total comprehensive income Net return for the - - - - 273,686 2,333,655 2,607,341 period Provision for - - - - (4,547,896) - (4,547,896) diminution in value of investment in subsidiary Movement in unrealised appreciation on investments held as available for sale: - Recognised in equity - - - 1,352,660 - - 1,357,358 - Recognised in return - - - (159,534) - - (159,534) after taxation Transactions with shareholders recorded directly to equity Ordinary dividends - - - - - (112,044) (112,044) paid Participating element - - - - - (49,948) (49,948) of preference dividends paid Conversion of (858,782) - - - - - (858,782) non-voting ordinary shares into fixed rate preference shares Conversion of 773,833 - 1,723,570 - - - 2,497,403 preference shares into ordinary shares Issue of new ordinary 662,246 3,682,753 - - - - 4,344,999 shares Costs of issue - (237,556) - - - - (237,556) Balance at 30 June 2,386,025 4,464,443 2,408,820 3,536,373 443,750 2,962,669 16,202,080 2013 *Reserves that are distributable by way of a dividend. The notes below form part of these financial statements CONSOLIDATED AND COMPANY BALANCE SHEETS As at 30 June 2014 Group Group Company Company 2014 2013 2014 2013 Note Â£ Â£ Â£ Â£ Non-current assets Investments 12 17,486,703 12,798,594 17,486,703 12,798,594 Investment in 13 - - 862,656 862,656 subsidiaries 17,486,703 12,798,594 18,349,359 13,661,250 Current assets Trade and other 15 161,071 1,393,916 171,703 1,476,220 receivables Investments held for 1,564 122,860 - - trading Cash and bank 1,754,315 3,138,062 1,711,321 3,135,055 balances 1,916,950 4,654,838 1,883,024 4,611,275 Current liabilities Preference dividends 5 - 82,914 - 82,914 payable Trade and other 16 344,660 401,634 339,457 397,348 payables 5% loan notes 10 365,700 365,700 365,700 365,700 maturing 2015 710,360 850,248 705,157 845,962 Net current assets 1,206,590 3,804,590 1,177,867 3,765,313 Non-current liabilities 5% loan notes 10 - (365,700) - (365,700) maturing 2015 Fixed rate 10 - - (858,783) (858,783) preference shares Net assets 18,693,293 16,237,484 18,668,443 16,202,080 Capital and reserves Issued capital 9 2,386,025 2,386,025 2,386,025 2,386,025 Share premium 4,453,903 4,464,443 4,453,903 4,464,443 Capital redemption 2,408,820 2,408,820 2,408,820 2,408,820 reserve Revaluation reserve 2,374,878 3,511,569 2,381,595 3,536,373 Capital reserve 6,784,563 3,013,972 4,232,428 443,750 Revenue reserve 285,104 452,655 2,805,672 2,962,669 Shareholders' funds 11 18,693,293 16,237,484 18,668,443 16,202,080 Net asset value per 50p 394.41p 342.60p ordinary share These financial statements were approved by the Board of The Investment Company PLC on 1 October 2014 and were signed on its behalf by: Sir David Thomson Chairman Company Number: 4205 The notes below form part of these financial statements. CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS For the year ended 30 June 2014 Group Company Year to 15 months to Year to 15 months to 30 June 2014 30 June 2013 30 June 2014 30 June 2013 Â£ Â£ Â£ Â£ Cash flows from operating activities Cash received from 1,204,193 406,454 1,087,064 402,933 investments Interest received 1,684 722,332 1,678 722,332 Sundry income - 468 - 468 Cash paid to and on behalf (34,337) (250,687) (34,337) (250,687) of employees Other cash payments (483,705) (377,647) (478,229) (373,640) Withholding tax paid (7,299) - (7,299) - Net cash inflow from 680,536 500,920 568,877 501,406 operating activities Cash flows from financing activities Bank interest paid - (2,195) - (2,195) Loan note interest paid (35,317) (53,583) (35,317) (53,583) Loan notes redeemed (365,700) (365,700) (365,700) (365,700) Fixed element of dividends (82,914) (524,455) (82,914) (524,455) paid on preference shares Participating element of - (49,948) - (49,948) dividends paid on preference shares Dividends paid on ordinary (710,932) (104,195) (710,932) (104,195) shares Share capital 1,184,789 2,998,176 1,184,789 2,998,176 subscriptions received Net cash (outflow)/inflow (10,074) 1,898,100 (10,074) 1,898,100 from financing Cash flows from investing activities Purchase of investments (9,076,089) (274,005) (9,076,089) (211,189) Amounts received from - - 71,672 (9,315) subsidiaries Sale of investments 7,022,181 1,228,530 7,022,181 1,174,574 Net cash (outflow)/inflow (2,053,908) 954,525 (1,982,236) 954,070 from investing activities Net (decrease)/increase in (1,383,466) 3,353,545 (1,423,466) 3,353,576 cash and cash equivalents Reconciliation of net cash flow to movement in net cash (Decrease)/increase in (1,383,466) 3,353,545 (1,423,433) 3,353,576 cash Exchange rate movements (301) - (301) - Loan notes redeemed 365,700 365,700 365,700 365,700 (Decrease)/increase in net (1,018,047) 3,719,245 (1,058,034) 3,719,276 cash Net cash/(debt) at start 2,406,662 (1,312,583) 2,403,655 (1,315,621) of period Net cash at end of period 1,388,615 2,406,662 1,345,621 2,403,655 Analysis of net cash Cash and bank balances 1,754,315 3,138,062 1,711,321 3,135,055 5% loan notes due within (365,700) (365,700) (365,700) (365,700) one year 5% loan notes due in more - (365,700) - (365,700) than one year 1,388,615 2,406,662 1,345,621 2,403,655 The notes below form part of these financial statements. NOTES TO THE FINANCIAL STATEMENTS At 30 June 2014 1. Accounting policies (a) Basis of preparation The Investment Company plc is a public limited company incorporated and registered in England and Wales. The consolidated financial statements for the year ended 30 June 2014 have been prepared in conformity with IFRS as adopted by the European Union, which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), and as applied in accordance with the provisions of the Companies Act 2006. During the period, the Company applied for, and was granted, approval from HM Revenue & Customs as an investment trust under s1158/1159 of the Corporation Tax Act 2010 for the year ending 30 June 2014. As a result the consolidated financial statements have also been prepared in accordance with the AIC SORP issued in January 2009 for the financial statements of investment trust companies and venture capital trusts, except to any extent where it is not consistent with the requirements of IFRS. The Directors have made an assessment of the Group's ability to continue as a going concern and are satisfied that the Group has the resources to continue in business for the foreseeable future. The Directors are not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern. Therefore, the consolidated financial statements have been prepared on the going concern basis. (b) Basis of consolidation The consolidated financial statements, which comprise the unaudited results of the Company and its wholly owned subsidiaries, Abport Limited and New Centurion Trust Limited, together referred to as the "Group", for the year ended 30 June 2014, have been prepared under the historical cost basis, except for the measurement at fair value of investments, and in accordance with International Financial Reporting Standards, as adopted by the European Union. As permitted by Section 408 of the Companies Act 2006, the Company has not presented its own Income Statement. The amount of the Company's return for the financial year dealt with in the financial statements of the Group is a profit after tax of Â£4,342,785 (2013: profit after tax of Â£2,607,341). (c) Segmental Reporting The Directors are of the opinion that the Group is engaged in a single segment of business, being investment business. The Group primarily invests in companies listed in the UK. (d) Significant estimates and assumptions The Group makes estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstance. In the future, actual experience may deviate from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing material adjustment to carrying amounts of assets and liabilities within the next financial year lie primarily in investments, their fair value and any impairment review. (e) Revenue and expenditure Revenue includes dividends and interest from investments which, on or before the balance sheet date, become receivable. Deposit interest receivable, expenses and interest payable are accounted for on an accruals basis. Where, before recognition of dividend income is due, there is any reasonable doubt that a return will actually be received, for example as a consequence of the investee company lacking distributable reserves, the recognition of the return is deferred until the doubt is removed. (f) Taxation Deferred tax is provided on an undiscounted basis in accordance with IFRS 19 on all timing differences that have originated but not reversed by the Balance Sheet date, based on tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of timing differences can be deducted. In line with the recommendations of the SORP, the allocation method used to calculate the tax relief on expenses charged to capital is the "marginal" basis. Under this basis, if taxable income is capable of being offset entirely by expenses charged through the revenue account, then no tax relief is transferred to the capital account. No taxation liability arises on gains from sales of fixed asset investments by the Company by virtue of its investment trust status. However, the net revenue (excluding UK dividend income) accruing to the Company is liable to corporation tax at the prevailing rates. (g) Dividends Ordinary dividends are recognised as a liability in the period in which they are paid or approved in general meetings and are taken to the Statement of Changes in Equity. Ordinary dividends declared and approved by the Company after the Balance Sheet date have not been recognised as a liability of the Company at the Balance Sheet date. (h) Earnings per ordinary share The Group calculates both basic and diluted earnings per ordinary share in accordance with IAS 33 "Earnings Per Share". Under IAS 33, basic earnings per share is computed using the weighted average number of shares outstanding during the period. Earnings are adjusted for the participating element of preference share dividends. (i) Investments Investments are recognised and derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned. All investments held that have been purchased by the Company since obtaining approval as an investment trust from 1 July 2013 are classified as at "fair value through profit or loss". Investments are initially recognised at cost, being the fair value of the consideration given. After initial recognition, investments are measured at fair value, with unrealised gains and losses on investments and impairment of investments recognised in the Consolidated Income Statement and allocated to capital. Investments held at 30 June 2014 which were purchased prior to 1 July 2013 are classified as assets available for sale. These investments have not been reclassified as "fair value through profit or loss" in accordance with IAS 39 Financial Instruments Recognition and Measurement. For investments actively traded in organised financial markets, fair value is generally determined by reference to quoted market bid prices or closing prices for SETS (London Stock Exchange's electronic trading service) stocks sourced from the London Stock Exchange on the Balance Sheet date, without adjustment for transaction costs necessary to realise the asset. Unlisted stocks are reviewed and valued by the Board on a regular basis and the fair value is determined based on estimates using present values or other valuation techniques. All investments for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy in note 12, described as follows, based on the lowest significant applicable input: Level 1 reflects financial instruments quoted in an active market. Level 2 reflects financial instruments whose fair value is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets. Level 3 reflects financial instruments whose fair value is determined in whole or in part using a valuation technique based on assumptions that are not supported by prices from observable market transactions in the same instrument and not based on available observable market data. For investments that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing the categorisation (based on the lowest significant applicable input) at the date of the event that caused the transfer. (j) Investments in subsidiaries Investments in subsidiaries are stated at cost less provision for diminution in value. (k) Impairment review At each balance sheet date, a review is carried out to assess whether there is any objective evidence that the Group's available for sale financial assets have become impaired. Where such evidence exists, the amount of any impairment loss is recognised immediately in the Consolidated Income Statement. Any excess of the impairment loss over the amount previously recognised in equity is recognised in the Consolidated Statement of Comprehensive Income. If, in a subsequent period, the fair value of available for sale financial assets increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed and the amount of the reversal is recognised in profit or loss where it relates to a debt instrument. (l) Fixed rate preference shares The fixed rate preference shares are non-voting, are entitled to receive a cumulative dividend of 0.01p per share per annum, and are entitled to receive their nominal value, 50p, on a distribution of assets or a winding up. Preference shares are disclosed as non-current liabilities in accordance with IAS 32 (Financial Instruments: Disclosure and Presentation). (m) IFRS standards The following standards, amendments to existing standards and interpretations relevant to the Group's activities have been published and are mandatory for the Group's accounting periods beginning on or after 1 January 2014 or later periods but the Group has not adopted them early: International Accounting Standards (IAS/IFRSs) Effective for periods beginning on or after IAS 27 Reissued as IAS 27 Consolidated and Separate 1 January 2014 Financial Statements (as amended in 2011) IAS 28 Investments in Associates and Joint Ventures 1 January 2014 IFRS 9 Financial Instruments: Classification and 1 January 2014 Measurement IFRS 10 Consolidated Financial Statements 1 January 2014 IFRS 11 Joint Arrangements 1 January 2014 IFRS 12 Disclosure of Interests in Other Entities 1 January 2014 The Directors anticipate that the adoption of these standards, amendments to existing standards and interpretations in future periods will have no material financial impact on the financial statements of the Group or the Company. (n) Reserves Capital reserve The following are accounted for in this reserve: â€¢ gains and losses on the realisation of investments; â€¢ net movement arising from changes in the fair value of investments held and classified as at "fair value through profit or loss" that can be readily converted to cash without accepting adverse terms; â€¢ net movement in the impairment provision of investments held as available for sale; and â€¢ net movement from changes in the fair value of derivative financial instruments. Revaluation reserve The revaluation reserve represents the accumulated unrealised gains on the Company's available-for-sale investments. 2 Income Year ended 15 months ended 30 June 2014 30 June 2013 Â£ Â£ Income from investments: UK dividends 356,083 378,479 Un-franked dividend income 199,504 - UK fixed interest 494,554 745,656 1,050,141 1,124,135 Other income: Bank deposit interest 1,684 - Sundry income - 468 Net dealing (losses)/gains of subsidiaries (5,937) 10,391 Total income 1,045,888 1,134,994 3 Investment Management fee Year ended 15 months ended 30 June 2014 30 June 2013 Â£ Â£ Investment Management fee 116,251 - Under the terms of the Management Agreement, the Manager is entitled to receive from the Company or any member of the Group in respect of its services provided under this Agreement, a management fee payable monthly in arrears equal to one-twelfth of 1% per calendar month of the NAV of the Company. For these purposes, the NAV shall be calculated as at the last Business Day of each month and is subject to the ongoing charges ratio of the Company not exceeding 2.5% per annum in respect of any completed financial year. At 30 June 2014 an amount of Â£116,251 (2013: Â£nil) was outstanding and due to Miton Asset Management Limited. 4 Other expenses Year ended 15 months ended 30 June 2014 30 June 2013 Â£ Â£ Administration and secretarial services 104,616 138,750 Auditors' remuneration for: - audit of the Group's financial 26,000 23,650 statements - other services relating to taxation 4,850 5,000 - other assurance services - 32,675 Directors' remuneration (see the 62,791 134,796 Directors' Remuneration Report in the full Annual Report and Accounts) Salaries 14,000 40,000 Pension costs 10,829 25,189 Restructuring costs 12,932 191,466 Other expenses 119,240 115,825 348,198 707,351 5 Finance costs Year ended 15 months ended 30 June 2014 30 June 2013 Â£ Â£ Participating Preference Shares Fixed entitlement - in first half year 0.0p (2013: 3.5p) - 174,818 - in second half year 0.0p (2013: 3.5p) - 174,818 - up to conversion 0.0p (2013: 1.6p) - 82,914 - 432,550 The participating preference shares were converted into ordinary shares in the period to 30 June 2013. 6 Taxation Year ended 15 months ended 30 June 2014 30 June 2013 Revenue Capital Total Revenue Capital Total Â£ Â£ Â£ Â£ Â£ Â£ Overseas taxation 7,299 - 7,299 - - - suffered The current taxation charge for the year is lower than the standard rate of corporation tax in the UK of 21%. The differences are explained below: Year ended 15 months ended 30 June 2014 30 June 2013 Revenue Capital Total Revenue Capital Total Â£ Â£ Â£ Â£ Â£ Â£ Return on ordinary 550,680 3,770,591 4,321,271 (69,802) 268,987 199,185 activities Theoretical tax at UK 123,903 848,383 972,286 (16,753) 64,557 47,804 corporation tax rate of 22.50% (2013: 24%) Effects of: UK dividends that are (80,119) - (80,119) (90,835) - (90,835) not taxable Overseas dividends that (33,585) - (33,585) - - - are not taxable Realised dealing gains (19,764) - (19,764) - - - Unrealised dealing 18,462 - 18,462 - - - losses Non-taxable investment - (670,183) (670,183) - (52,827) (52,827) gains Movement in impairment - (178,200) (178,200) - (11,730) (11,730) provision not deductible for tax purposes Overseas taxation 7,299 - 7,299 - - - suffered Preference dividends - - - 103,812 - 103,812 not deductible for tax Expenses not deductible - - 2,742 - 2,742 for tax Utilisation of tax (8,897) - (8,897) 1,034 - 1,034 losses 7,299 - 7,299 - - - Factors that may affect future tax charges The Company has excess management expenses of Â£2,134,613 (2013: Â£2,199,842) that are available to offset future taxable revenue. In addition, deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the Company meets (and intends to continue for the foreseeable future to meet) the conditions for approval as an investment trust company under HMRC rules. It is unlikely that the Company will generate sufficient taxable income in the future to utilise these expenses to reduce future tax charges and therefore no deferred tax charge has been recognised. 7 Return/(loss) per ordinary share Year ended 15 months ended 30 June 2014 30 June 2013 Revenue Capital Total Revenue Capital Total Return after taxation Return attributable 543,381 3,770,591 4,313,972 (69,802) 268,987 199,185 to ordinary shareholders (Â£) Add participating - - - (49,948) - (49,948) element of Preference share dividend Return attributable 543,381 3,770,591 4,313,972 (119,750) 268,987 149,237 to ordinary shareholders (Â£) Weighted average 4,739,549 1,886,328 number of ordinary shares in issue (excluding shares held in treasury) Return/(loss) per 11.46 79.56 91.02 (6.35) 14.26 7.91 ordinary share (pence) The return on total comprehensive income per ordinary share has been calculated to enable comparison of the returns per share shown in the annual reports of other investment trust companies. A reconciliation is shown below: Year ended 15 months ended 30 June 2014 30 June 2013 Revenue Capital Total Revenue Capital Total Return on total comprehensive income Return attributable 543,381 3,770,591 4,313,972 (119,750) 268,987 149,237 to ordinary shareholders (Â£) Add other - 798,908 798,908 - 1,357,358 1,357,358 comprehensive income recognised in equity Add other - (1,935,599) (1,935,599) - (159,534) (159,534) comprehensive income recognised in profit and loss Return attributable 543,381 2,633,900 3,177,281 (119,750) 1,466,811 1,347,061 to ordinary shareholders (Â£) Weighted average 4,739,549 1,886,328 number of ordinary shares in issue (excluding shares held in treasury) Return/(loss) per 11.46 55.57 67.03 (6.35) 77.76 71.41 ordinary share (pence) 8 Dividends per ordinary share Year ended 15 months ended 30 June 2014 30 June 2013 Â£ Â£ In respect of the prior period: Final dividend 0.00p (2013: 4.00p) - 74,696 In respect of the year under review: First interim dividend 5.00p paid on 236,978 37,348 22 November 2013 (2013: 2.00p) Second interim dividend 5.00p paid on 236,977 - 21 February 2014 Third interim dividend 5.00p paid on 23 May 236,977 - 2014 710,932 112,044 Dividend declared in respect of the year under review: Fourth interim dividend 5.72p paid on 271,102 - 22 August 2014 9 Called up share capital Group and Company Group and Company 2014 2013 Number Â£ Number Â£ Ordinary shares 50p each: Opening balance 4,772,049 2,386,025 1,899,891 949,946 Issued pursuant to - - 1,547,665 773,833 conversion of Participating Preference Shares Issued pursuant to a - - 1,324,493 662,246 placing 4,772,049 2,386,025 4,772,049 2,386,025 In addition to the above ordinary shares, the issued capital of the Company includes 1,717,565 fixed rate preference shares of 50p each. Details of these preference shares in the Company are set out in note 10. The ordinary shares entitle the holders to receive all ordinary dividends and all remaining assets on a winding up, after the fixed rate preference shares have been satisfied in full. The Company holds 32,500 ordinary shares in treasury. 10 Interest bearing liabilities Group Company 2014 2013 2014 2013 Â£ Â£ Â£ Â£ 5% loan notes maturing 2015 365,700 731,400 365,700 731,400 Fixed rate preference shares - - 858,783 858,783 365,700 731,400 1,224,483 1,590,183 A bank loan facility is available to the company of up to Â£500,000, to be secured by an omnibus charge over a portfolio of shares with a valuation of Â£2,219,760. At 30 June 2014 no loan was outstanding. The loan notes were issued at par on 7 March 2005 as part of the consideration for the acquisition of New Centurion Trust Limited. The loan notes are unsecured and unsubordinated and are being redeemed by the Company at par as to 50% of their aggregate original principal amount on the fifth anniversary of the completion date, which was 7 March 2010, and as to a further 10% on each anniversary thereafter up to and including the tenth anniversary. Loan notes maturity analysis Group Company 2014 2013 2014 2013 Â£ Â£ Â£ Â£ In not more than one year 365,700 365,700 365,700 365,700 In more than one year but not more - 365,700 - 365,700 than two years 365,700 731,400 365,700 731,400 The 1,717,565 fixed rate preference shares of 50p each, all of which are held by New Centurion Trust Limited, a wholly owned subsidiary of the Company, are non-voting, are entitled to receive a cumulative dividend of 0.01p per share per annum, and are entitled to receive their nominal value, 50p, on a distribution of assets or a winding up. The Directors do not consider the fair values of the Group's financial instruments to be significantly different from the carrying values. 11 Net Asset Value per Ordinary Share The net asset value per ordinary share is calculated as follows: 2014 2013 Â£ Â£ Net assets 18,693,293 16,237,484 Ordinary shares in issue, excluding own shares held 4,739,549 4,739,549 in treasury Net asset value per ordinary share 394.41p 342.60p The underlying investments of New Centurion Trust Limited comprise Fixed Rate Preference Shares in The Investment Company plc and, being effectively eliminated on consolidation, the valuation thereof does not impact the net asset value attributable to ordinary shareholders. 12 Investments Group Company 2014 2013 2014 2013 Â£ Â£ Â£ Â£ Available for sale 8,865,845 12,798,594 8,865,845 12,798,594 At fair value through profit and 8,620,858 - 8,620,858 - loss Total investments designated at 17,486,703 12,798,594 17,486,703 12,798,594 fair value Investments held as available for sale Group Company 2014 2013 2014 2013 Â£ Â£ Â£ Â£ Opening book cost 12,408,510 13,073,264 12,505,185 13,169,938 Opening net investment 390,084 (856,618) 293,409 (953,292) holding gains/(losses) Total investments 12,798,594 12,216,646 12,798,594 12,216,646 designated at fair value Movements in the period: Purchases at cost - 290,439 - 290,439 Sales - proceeds (4,593,355) (1,175,304) (4,593,355) (1,175,304) - gains on sales 1,005,299 220,111 1,005,299 220,111 (Decrease)/increase in (344,693) 1,246,702 (344,693) 1,246,702 investment holding gains Closing valuation 8,865,845 12,798,594 8,865,845 12,798,594 Closing book cost 8,820,454 12,408,510 8,917,129 12,505,185 Closing net investment 45,391 390,084 (51,284) 293,409 holding gains/(losses) 8,865,845 12,798,594 8,865,845 12,798,594 Investments held at fair value through profit and loss Group Company 2014 2013 2014 2013 Â£ Â£ Â£ Â£ Opening book - - - - cost Opening net - - - - investment holding gains Total - - - - investments designated at fair value Movements in the period: Purchases at 9,076,089 - 9,076,089 - cost Sales - proceeds (2,428,746) - (2,428,746) - - gains on 1,451,392 - 1,451,392 - sales Increase in net 522,123 - 522,123 - investment holding gains Closing 8,620,858 - 8,620,858 - valuation Closing book 8,098,735 - 8,098,735 - cost Closing net 522,123 - 522,123 - investment holding gains 8,620,858 - 8,620,858 - Group & Company Year ended 30 June 2014 Â£ Transaction costs Costs on acquisitions 28,280 Costs on disposals 12,909 41,189 Group & Company Group & Company Year ended 15 months ended 30 June 2014 30 June 2013 Â£ Â£ Analysis of capital gains Gains on sale of investments 2,456,691 220,111 Movement in investment holding 177,430 1,246,702 gains 2,634,121 1,466,813 Fair value estimation: IFRS 7 requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset either directly (that is, as prices) or indirectly (that is, derived from prices). Level 3 - Inputs for assets that are not based on observable market data (that is, unobservable inputs). The table below presents the Group's assets that are measured at fair value: At 30 June 2014 Level 1 Level 2 Level 3 Total Â£ Â£ Â£ Â£ Fixed asset investments held by 13,888,686 372,816 3,225,201 17,486,703 the Company Current asset investments held 1,564 - - 1,564 by a trading subsidiary 13,890,250 372,816 3,225,201 17,488,267 At 30 June 2013 Level 1 Level 2 Level 3 Total Â£ Â£ Â£ Â£ Fixed asset investments held by - 6,008,774 6,789,820 12,798,594 the Company Current asset investments held 122,860 - - 122,860 by a trading subsidiary 122,860 6,008,774 6,789,820 12,921,454 At 30 June 2013, instruments included in Level 2 are reported at the mid bid/ offer price less 1%. Specific valuation techniques used to value the financial instruments include: (i) Quoted market prices (ii) Other techniques, taking account of independent market opinion, are used to determine the fair value for the remaining financial instruments These assets comprise primarily London Stock Exchange equity investments and fixed income securities classified as fixed asset and current asset investments as appropriate. Where significant inputs are not based on observable market data, the instrument is included in Level 3. There were no transfers between levels during the period ended 30 June 2013. The table below presents the movement in Level 3 investments for the year ending 30 June 2014. Group Company Â£ Â£ Opening balance 6,789,920 6,789,920 Transfers to Level 1 (2,592,810) (2,592,810) Movement in impairment provision 189,880 194,722 Movement in unrealised appreciation recognised (85,730) (90,572) in equity Movement in unrealised appreciation recognised (39,312) (39,312) in return after taxation Realised loss (209,253) (209,253) Sales proceeds (827,394) (827,394) Total gains for the year included in the 274,091 274,091 Statement of Comprehensive Income Closing balance 3,225,201 3,225,201 13 Investment in Subsidiaries Company 2014 2013 Â£ Â£ At cost 5,410,552 5,410,552 Provision for diminution in value (4,547,896) (4,547,896) At cost 862,656 862,656 At 30 June 2014, the Company held interests in the following subsidiary companies: % share % share Country of of capital of voting Nature of Incorporation held rights business Abport Limited England 100% 100% Investment dealing company New Centurion Trust England 100% 100% Investment Limited holding company (dormant) 14 Substantial share interests The Company has notified interests in 3% or more of the voting rights of the following companies: Company % share of voting rights Associated British Engineering plc 4.88 15 Trade and Other Receivables Group Company 2014 2013 2014 2013 Â£ Â£ Â£ Â£ Amount due from subsidiaries - - 10,634 82,306 Share capital subscriptions - 1,195,345 - 1,195,345 Trade and other receivables 161,071 198,571 161,069 198,569 161,071 1,393,916 171,703 1,476,220 The carrying amount of trade receivables approximates to their fair value. Trade and other --**receivables are not past due at 30 June 2014. 16 Trade and Other Payables Group Company 2014 2013 2014 2013 Â£ Â£ Â£ Â£ Reconstruction costs accrued - 186,656 - 186,656 Other trade payables 344,660 214,978 339,457 210,692 344,660 401,634 339,457 397,348 17 Analysis of financial assets and liabilities Background The investment objective of the group is to generate income and capital growth over the medium term. The group's financial instruments comprise investments in fixed interest securities and prior charge investments, borrowings for investment purposes, cash balances and debtors and creditors that arise directly from its operations. Risks The principal risks the group faces in its portfolio management activities are: â€¢ Market price risk - arising from uncertainty about future prices of financial instruments used by the group; â€¢ Interest rate risk - arising because the group may borrow funds in order to increase the amount of capital available for investment; and â€¢ Liquidity risk - because the group may invest in small companies with more limited marketability and in investments not traded on recognised or designated investment exchanges. Policy The investment philosophy of the Directors is to identify areas of value and potential capital growth in the medium term. Specific policies for managing risks are summarised below and have been applied throughout the period: 1.Market price risk The Manager monitors the prices of financial instruments held by the group on a regular basis. 2.Interest rate risk The Company finances its operations through existing reserves and loan notes with a fixed coupon of 5% 3.Liquidity risk The group's assets mainly comprise readily realisable quoted and unquoted securities that can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of overdraft facilities. Financial instruments Non-current assets 2014 2013 Â£ Â£ Listed investments 16,777,797 11,773,385 Unlisted investments 708,906 1,025,209 17,486,703 12,798,594 Current asset investments The group holds current asset investments with a market value of Â£1,564 (2013: Â£122,860) at the period end. Investments are subject to fluctuation in value due to market forces including interest rates. Current assets and current liabilities The Group's current assets and liabilities are denominated in sterling. Long-term loan The loan notes bear interest at a fixed rate of 5% per annum and are repayable in instalments. The value of current assets, current liabilities and long-term loans are not subject to interest rate risk. Sensitivity The direct impact of a 5% movement in the value of the portfolio investments and current asset investments amounts to Â£874,413 (2013: Â£646,073), being 18p (2013: 14p) per ordinary share. The Directors are of the opinion that the direct impact of a movement in short-term interest rates on the value of the investments is relatively small due to the illiquid and specialised nature of the investments in the portfolio. Capital structure and management The capital structure of the Group consists of cash held on deposit, loan notes and Ordinary Shares. 2014 2013 Â£ Â£ Cash and bank balances 1,754,315 3,138,062 Interest bearing liabilities (365,700) (731,400) Net cash 1,388,615 2,406,662 Ordinary Shareholders' funds 18,693,293 16,237,484 Gearing (net debt/ordinary shareholders' nil nil funds) The type and maturity of the Group's borrowings are analysed in note 10 and the Group's equity is analysed in note 9. Capital is managed so as to maximise the return to shareholders while maintaining a capital base to allow The Investment Company plc to operate effectively. Capital is managed on a consolidated basis. The Group is not a member of anybody that imposes minimum levels of regulatory capital. No significant external constraints in the management of capital have been identified in the past. 18 Related party transactions During the year the Company was charged administration fees of Â£52,383 (15 months to 30 June 2013: Â£138,750) by Ionian Investment Management which is a division of Fiske plc. At 30 June 2014 there were no balances outstanding (2013: Â£nil). Mr S. J. Cockburn is a substantial shareholder in Fiske plc. ANNUAL GENERAL MEETING The Company's Annual General Meeting will be held on Thursday, 11 December 2014 at 12.30 pm at the offices of Miton Group plc, 51 Moorgate, London EC2R 6BH. NATIONAL STORAGE MECHANISM A copy of the Annual Report and Accounts will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: www.morningstar.co.uk/uk/nsm ENDS Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.

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